Worried about your State Pension? Now’s the time to act

You need to act before April 5 to guarantee your State Pension in retirement.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re worried about your financial situation in retirement, now’s the time to act. There are two things you can do today to improve your long-term financial situation and, hopefully, give you a comfortable retirement.

Fill in the gaps 

The first is to fill in any gaps in your National Insurance contribution (NIC) history. According to the government’s guidance, you need at least 10 qualifying years on your NIC record to get any State Pension, with at least 35 qualifying years required to get the full rate (£164.35 per week). If you have between 10 and 35 qualifying years, you will be entitled to a certain percentage of the full amount. Each qualifying year on your NIC record after 5 April 2016 adds around £4.70 a week to your new State Pension.

If you don’t have the full 35 qualifying years, the good news is you can buy extra NIC credits. People who reach State Pension age after April 2016 have until April 2023 to fill in gaps in their records between 2006 and 2016. If you do this today, it will cost you approximately £630 for each year acquired. However, in the new tax year (April 5), the cost will rise to £780.

So, if you are eligible to buy NICs to improve your National Insurance record, now is the time to do it.

Start saving and investing

The other strategy you can use today to improve your financial situation in retirement is to set up a SIPP. 

The great thing about SIPPs is that you can claim tax relief on contributions up to £40,000 a year. What’s more, anyone under the age of 75 can pay into a SIPP even if they aren’t earning money (non-earners can contribute up to £2,880 each tax year and still receive tax relief).

In my opinion, if you’re worried that your level of State Pension might not be enough to live off in retirement, opening a SIPP is the best thing you can do today.

According to a study compiled by asset manager Royal London, Britons need at least £260,000 to retire without money worries. If you can max out your SIPP contributions every year, you could hit this target in just five years. A contribution of £40,000 with a 20% government bonus equates to £50,000 of contributions every year. 

Over 15 years of saving, you only need to put away £14,000 a year. On top of this, the government will add 20% basic tax relief of £3,500 for an annual contribution of £17,500, building a total pension pot of £260,000 over a decade-and-a-half of saving. 

Both of these examples exclude any interest received on the money you put away. If you invest the money you’re saving in a low-cost fixed income fund with a dividend yield of around 3%, for example, you would only need to save £800 a month for 15 years to meet the target of £260,000. On top of your £800 a month contribution, the government would add 20% basic tax relief for a total annual contribution of £12,000. Invested in a low-risk bond fund yielding around 3% a year, this £1,000 a month contribution could help you retire quite comfortably. 

So what are you waiting for? If you’re worried about your State Pension, you can use either of the tactics above to improve your financial position today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »